Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as

Question

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Under the equity method, dividends received from the investee (Sells Company, in this case) are considered a return on investment and thus reduce the carrying value of the investment on the investor's (Koehn Corporation's) books. This reflects the fact that the dividends decrease the investee's equity, which is mirrored in the investor's accounting for their share of the investee's equity.

Koehn Corporation Accounts for Its Investment in the Common Stock